Another option for Central Asian gas

Central Asians are the strange region out of the Natural Gas world. They have lots of it. They would like to export it. But that’s very hard. In the meantime, something much more worthwhile could be done with it.

Natural Gas from Central Asia is the stuff that gives more than one energy company executive officer wet eyes and goose bumps. There have been many proposals to bring this gas to well paying markets but very little has been achieved – so far.

The reason seems clear. Central Asia is landlocked and also far removed from any market that can swallow these volumes reliably – and of course also pay vanilla prices. Besides, the whole region is festering with animosities and distrust. Not really an environment where huge infrastructure projects that require multinational cooperation are implemented on a daily basis.

Oh, another solution?

Oh, another solution?

To be frank, multinational pipeline projects are already a challenge in supposedly business freindly environments such as the European Union.

You will retort that the Russians had also built huge gas pipelines all across Eastern and Central Europe and it had worked beautifully. True, but when and under what conditions? At the time, the Sovjet Union held sway over Eastern and large parts of Central Europe. That was hardly a multi national project. It was much more Moscow central planning – no objection possible.

Projects of that magnitude are more complex today. For a start they need to make economic sense. Yes, you understand quite well. Lenders to projects want to see clearly that they will recoup their investment – with a little something on top. Otherwise they dont lend. I don’t blame them. That was not really one of the first and foremost concerns of Soviet planners.

But that does not shock me. What I have problems to understand with is that many of todays big or biggish energy companies seem to have the same Soviet reflexes. Money and profitability does not matter – it seems.

There is also a lot of stuff to worry about today like transit country issues, security issues, NIMBY and NIMTO issues, lots of global politics, you name it. Looking at the complexity, it is surprising that any such project ever gets the nod. But thats another issue I will deal with in another post.

Before I stray to far. The topic is not why some things dont work, or are bad options. The real interesting one is what to do with all that nice Natural Gas under Central Asians feet.

If export is a very difficult option, maybe its a better idea to use some of that gas domestically for better effect. I am not talking about home heating or industrial processes although those are valid targets as well. No, what I really talk about is using Natural Gas as a replacement fuel for light (gasoline) and middle distillates (diesel and kerosene) as well as heavy residual fuels. All those fuels are byproducts of crude oil processing and they are all expensive – and dirty.

If Central Asia imports refined fuels in order to keep their vehicles chugging, they pay a heavy penalty for mobility. If instead they would use their own product – namely Natural Gas under their feet – they could stop importing a priced commodity or start exporting it I they produce themselves. In any case, exporting fuels that stay liquid under ambient conditions must be much easier than exporting fickle gas.

But how realistic is the use of Natural Gas as a transport fuel in that particular area. I will stay clear from CNG which is a pretty well known technology used with much success in countries like India. CNG is a fuel for rather smallish vehicles – the vehicle tanks are pretty heavy compared to the energy content they hold which makes it an impossible option for vehicles that need range and all day action.

My focus is on heavy trucking and other heavy duty vehicles. The better option for them is LNG. Its comparatively easy to handle (no high pressures) and has good energy density (one just needs 1,6 times as much volume for the same energy content than diesel. A vehicle tank a little bigger than d diesel tank gives the trucker the same reach as he is used to with diesel.

Surprisingly, most people I talk with think that LNG is a technically difficult fuel option. They think that they are dealing with space technology.

Far from it. LNG is as safe and as simple as a fuel as diesel or gasoline is today. The technologies are decades old and well proven and costs can be boxed in very reliably. Fuelling a truck with LNG is not really more difficult than fuelling it with diesel. Admitted, the handle looks different and you have to wear gloves in order to prevent cold burn. But that’s nothing the average truck driver no matter where in the world would not readily understand.

The funny quirk might well be that converting their Natural gas into LNG would be more profitable for Central Asians than trying to export it. The market might be too small to swallow all the gas there is and it will take some time to reach critical mass but the crazy developments in the US show us how quick it can go. Central Asian Natural gas is cheaper on the wellhead than US shale. Fuel is more expensive on the pump. That makes a lot of economic common sense to me. No need to run the numbers.

Slowly, the spark would spread and ignite the whole region for LNG as a fuel. There are solid, low cost mid scale liquefaction trains that could be deployed at strategic points in the region in order to build up a network of fuelling stations. It could all start with fleet vehicles like commuter busses and garbage haulers. China is doing it for a while now and it looks great to me.

Usually, going green costs money. This time, greenery might save the Central Asians quite some cash and vastly improve their quality of life. When in life are you offered the opportunity to wear the badge “Savior of the planet” and you make money at the same time?

Should Central Asians stop looking at export plans altogether? By no means, but they should look at more than one way to use their natural gas.

6 Comments on "Another option for Central Asian gas"

  1. Marco Andreola | January 14, 2013 at 7:50 am | Reply

    Dear Rudolf good morning.

    Very interesting article, as usual.

    I believe the topic is highly interesting and of paramount importance in the Mediterranean / Baltic, Black Sea and former communist Countries.

    Some hints for your next article:

    – the Hungarian, Croatian and Serbian scenario: they are all keen to have the kirk terminal approved and operating within a few years. All these countries are highly dependent on the Russian NG, and a second terminal (in front of the planned Gas Natural LNG terminal in the bay of Trieste) within the Blue Adriatic task of the TEN T EU project is the best chance they all are looking for.

    Besides, all these Countries (Hungary, Croatia) have much more opportunities to be founded by the EU commissions since they are still considered “under development countries in EU):

    – the Irangate: the is a lot to say about the Iranian gas and the huge field shared with Qatar, the hidden reasons why Iran is under the embargo and the reluctance of big O&G sisters to cut out the Caspian area from the exporting Countries.

    – Then, a comment about the south Stream and Nabucco is just obvious, talking about the Caspian gas hub.

    Thank you Rudolf for the always very good and simply explained insight about gas secnatios.

    Your friend Marco

    • thanks for the comment Marco. You are right – each of these topics deserves its own post and I certainly jump on each of them some time.
      One of Krk’s problems is supply. Everyone on the Russian hook seems to believe that LNG is the cheap solution and then they founder when they see the prices. Lithuania tries to solve this with a new law forcing everyone to buy at least 25% LNG which clearly falls foul on EU rules. If Krk terminal would become a Bulk Break destination for LNG as a fuel, this would make a lot more sense. Then distributing mid scale LNG all over the Adriatic to the gas islands of Dubrovnik and Split and many other cities would make an awful lot of sense.
      Iran is not only worth one post, its worth a series. Lets not forget that originally Nabucco was designed to be the pipe for Iranian gas into Europe. Caspian gas was only the secondary alternative. But I think that the Middle East will in the future require pretty much all of its gas itself. With the advent of shale I think it does not make a awful lot of economic sense anymore to transport gas around the world. The future of LNG does not lie in “big is better”. The future lies in small and economic. The Central Asians could start improving their lives now instead of waiting for Godot.

  2. Hi Rudi – As a mid-term situation I think Central Asia would be better going for GTL plants and using existing vehicles/ engines. However, nealry all of this is associated with oil production which means they can sell oil & pet products to everyone else (foreign revenue) and use the byproduct gas for themselves.Longer-term though, I agree LNG is way to go.

    • Leigh, GTL is a nice solution but a bit heavy on the CAPEX side. Then again, if your feedstock is cheap and the price you pay for fuel is high then there is nothing to say against it. I looked at the long-term implications. Building this in 1 year is not an option. Then again, start with a smallish seeder project with fleet vehicles and then let the virus spread. I think its important to kick in the seeder. Then things might unfold by themselves. But again, Its a long-term play.

  3. Re, Krk LNG – this like so many other projects will be “political” rather than commercial as purpose is to introduce competition to Russian gas in the region – nooone ever said it would cheaper or even commercial. However, smaller Plinarco led project may have a future. Re South Stream – we must remember this a Russian pipeline hence never planned to be commercial either – indeed recent calcs have shown it to be a “losing money” project plus (and a big plus) there is no new gas to go in it as it will divert existing gas from Ukraine transit pipelines. I’ve said a lot in print elsewhere re Nabucco so wont repeat – lets just say never a real project (at least 2 or maybe 3 commercial projects but not joined together) and the stunted new Nabucco West is not great either plus of course it never anything but a puff of Azerbaijani gas to fill a miniscule amount of its capacity – another political project but this time by EU (hence most of the commercial companies steadily withdrew support as they looked at the figures).

    • I agree fully, Krk is a political monster and it better remains a paper tiger. One must ask himself if the goal of introducing competition to Russian gas no matter what the consequences is worth the price to pay. A terminal in the Adriatic will not make Gazprom behave nicely. Its simply too insignificant to be much of a worry to them. The current death spiral of high long-term prices and lower spot prices in the real big markets in Europe is much more effective. I am not a big fan of political projects. Maybe a leftover from my time in tourism where anything non profitable had a quick, un-ceremonial demise. I agree fully that neither South Stream, not Nabucco (be it West or other) are commercial projects. Nabucco is a leftover of the pre 2002 gas stone age in Europe. It has been proposed post 2002 but most of the European utilities are led by a mix of dinosaur pre 2002 mentality plus some breakneck trading mentality. This starts to change now as companies feel the pain of the consequences. The planners of those pipes always thought that they only need to plan it and fill it (that’s how the Soviets ticked) and then things are going to be good. But markets tend to have a will of their own. Ignoring that is a recipe for disaster.

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